Quick Answer: What Is Conservative Approach To Working Capital Financing?

Conservative approach is a risk-free strategy of working capital financing.

A company adopting this strategy maintains a higher level of current assets and therefore higher working capital also.

So, the risk associated with short-term financing is abolished to a great extent.23 Mar 2019

What are the 3 working capital financing policies?

There are three strategies or approaches or methods of working capital financing – Maturity Matching (Hedging), Conservative and Aggressive. Hedging approach is an ideal method of financing with moderate risk and profitability.16 Jan 2019

What is aggressive approach of financing working capital?

Aggressive Approach to Working Capital Financing. The aggressive approach is a high-risk strategy of working capital financing wherein short-term finances are utilized not only to finance the temporary working capital but also a reasonable part of the permanent working capital.25 Mar 2019

What are the approaches of working capital?

There are basically three approaches to financing working capital. These are: the Hedging approach, the Conservative approach and the Aggressive approach. Hedging Approach: The hedging approach is also known as the matching approach.21 Mar 2012

What is the difference between conservative and aggressive loans?

Conservative portfolios typically contain a higher percentage of large-cap stocks and short-term bonds, while aggressive portfolios include international and emerging market stocks and only a small percentage of intermediate-term bonds.

What is maturity matching working capital financing policy?

Maturity matching or hedging approach is a strategy of working capital financing wherein short term requirements are met with short-term debts and long-term requirements with long-term debts. The underlying principal is that each asset should be compensated with a debt instrument having almost the same maturity.23 Mar 2019

What are the working capital financing policies?

Working capital financing policy basically deals with the sources and the amount of working capital that a company should maintain. A firm is not only concerned about the amount of current assets but also about the proportions of short-term and long-term sources for financing the current assets.